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Source: William Dyer Grampp, Economic Liberalism (New York: Random House, 1965). vol. 1 The Beginnings. Chapter: 4: Republican Economic Policy.
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Republican Economic Policy
THE DIFFERENTIA OF REPUBLICANISM
As power was the distinctive feature of Federalist doctrine, that which was distinctive about Republicanism was enlightenment, improvement, and education of the people in order to increase their ability to be free. The purpose is implied in the tracts which Paine wrote during the Revolution; it appears in the writings of Joel Barlow; and it is made most explicit by Jefferson. Men, he said can be “habituated to think for themselves, and to follow reason as their guide.”
Jefferson may have taken the idea from the French utilitarians, from Rousseau, or from Joseph Priestley’s Lectures on History and General Policy (with all of whom he was familiar). They believed the government should provide public instruction in order to enlighten the people. Jefferson’s utilitarianism however went beyond education and beyond the utilitarianism of the Europeans who influenced him. He believed the common environment of the people had to be controlled, and for most of them education—as formal instruction—was but a small part of it. They were much more influenced by what they saw of government, by the conduct of the men in it, and most of all by the circumstances of their economic life. Jefferson believed the government should be a model of rectitude and the conduct of those in it should set an example to be emulated, that the economic environment of the people should inculcate responsibility, independence, honesty, and the other moral qualities that are essential to liberty. He believed, in other words, that men were very much influenced by externals. Although not the captives of their environment, they were sensitive to it and for a considerable time could be under its rule.
On this premise, Jefferson quite reasonably opposed the policy of the Federalists, which was an appeal to self-interest. It did not evoke the best in men but the worst, he believed, because he found most expressions of self-interest to be pernicious. Instead of improving the environment of the people, the Federalists debased it. They deluded men instead of habituating them to the reason which would make them free. Against Hamilton’s belief that government must take men as it finds them, he set the opposite belief that government must improve them. That could be done, he said,
by education, by appeals to reason and calculation, by presenting . . . other motives to do good and to eschew evil, such as the love, or the hatred, or rejection of those among whom he lives, and whose society is necessary to his happiness and even his existence; demonstrations by sound calculation that honesty promotes interest in the long run; the rewards and penalties established by the laws; and ultimately the prospects of a future state of retribution for the evil as well as the good done while here.49
Joel Barlow likened the obligation of government to the “tender duty of a father.” The government, he said, can remove the natural deficiencies of men by education, by “tender ministrations,” by persuading them that they are free and equal. “This point once settled, everything is settled,” he said. He finished off his political tracts with the quatrain:
- Of these no more. From orders, slaves and kings,
- To thee, O MAN, my heart rebounding springs,
- Behold th’ ascending bliss that waits thy call,
- Heav’ns own bequest, the heritage of all.50
Although it reads a little bumptiously today, there was reason in it at the time. Men are not the material of free government if they think they are inferior creatures, which they are apt to do after long subjection.
Barlow—to digress briefly on an attractive figure—had an astonishing amount of presumption but a winning way with words. He quoted the couplet:
- Treason doth never prosper. What’s the reason?
- If it doth prosper it is not treason.
which is like Smith’s remark that rebels and heretics are those unfortunates who when matters come to a point of violence happen to be on the losing side.51 During the French Revolution, Barlow addressed a Letter to the National Convention instructing it in the reform of France. He disavowed any presumption. He was moved to address them, he said, by “the interest which the human heart naturally takes in uttering the truth on a very important subject.” In another communication to it (he was a great letter writer) he accused John Locke, one of his intellectual predecessors, of betraying free principles in the constitution Locke wrote for the colony of South Carolina. John Adams, as noted below, had remarked on that constitution also. My favorite letter is Barlow’s Advice to the Privileged Orders. He told the French aristocracy:
Engrave it on the heart of man, that all men are equal in their rights, and that the government is their own, and then persuade him to sell his crucifix and buy a musquet,—and then you have made him a good citizen.
The early Americans, it is pleasant to observe, didn’t think they had to pull a long face when they talked of first principles.
When Barlow, Jefferson, and others said that the work of government was enlightenment, they did so because they believed the people in their present state were not fully capable of freedom. The Republicans did not, as is so often contended, believe the common people could be given complete power immediately and trusted to use it wisely nor did they condemn the Federalists for not holding this belief. Had the Republicans believed this, they would not have believed the people had to be improved. All governments have in them “some trace of human weakness, some germ of corruption and degeneracy.” The germ becomes virulent when men contend over property. It also has other manifestations. Men have an insatiable appetite for power, they can be deluded for a protracted time, and they are belligerent: “In truth I do not recollect in all the animal kingdom a single species but man which is eternally and systematically engaged in the destruction of its own species.” All this was said by Jefferson and does not suggest an unqualified belief in human goodness.52
Nor did he hold the opposite view of human nature. If he had thought men were wholly depraved, he would not have thought the government could improve them. (Nor could Hamilton have believed men were wholly bad, because he then could not have supported any form of government other than one that was authoritarian.) What Jefferson did believe was that the evil in men exists alongside much that is good and that in favorable conditions the good will prevail. Along with the avarice, ambition, irrationality, and belligerence, “nature has implanted in our breasts a love of others, a sense of duty to them, a moral instinct, in short, which prompts us irresistibly to feel and to succor their distresses.” (Not quite “irresistibly,” because if we were irresistibly altruistic, government would be unnecessary and improvement would be as unnecessary as it would be impossible.) Jefferson attributed this conception of human nature to the founding fathers. He wrote:
We [Republicans] believed, with them, that man was a rational animal, endowed by nature with rights, and with an innate sense of justice; and that he could be restrained from wrong and protected in right, by moderate powers, confided to persons of his own choice, and held to their duties by dependence on his own will.53
This statement is as important for what it says about the power of government as about human nature. It expresses the Republican belief in the limitation of power and in the sovereignty of the people, the latter being both an end in itself and a means of limitation. Jefferson did not think the Constitution made the abuse of power impossible. Rather than rely on checks and balances, he preferred an “absolute acquiescence in the decisions of the majority—the vital principle of republics, from which there is no appeal but to force,” and upon the restraining power of state governments, “the surest bulwarks against anti-republican tendencies.”54 Reliance on “majority” will must be taken to mean the will of the competent majority, or else the other elements of his political doctrine have no meaning.
To want to limit the powers of government is unusual in one who has been influenced by utilitarian doctrine and suggests its influence on Jefferson was not substantial, that it probably did no more than leave him with the idea that the government ought to “help” the people. The important question is what kind of help. Thoroughgoing utilitarians believe the state must have great powers so that it can provide the individual with all of those things he cannot provide for himself. They are especially insistent that the state exercise wide powers over the economy because he needs most assistance in managing his economic affairs. The ideas come from Bentham, the greatest of the utilitarians. His doctrine was one of those that justified the extension of the economic power of the British government in the nineteenth century which, as explained in volume two, was not, except in foreign trade, the golden age of laisser faire it is supposed to have been. In other countries economic control has been justified as a means of providing the greatest good to the greatest number, or of increasing the power of the nation, or of providing for the general welfare—all of which have been supposed to be synonymous.
Actions of this kind do not correspond to Jefferson’s conception of a proper economic policy (although they might to Hamilton who justified the Bank as essential to “the general welfare”).55 The economic policy that was nearest to the wishes of Jefferson was one that encouraged independent agriculture and required little government power. Although circumstances forced him to turn away from this policy, he did so regretfully and without abandoning his faith in the superiority of agriculture and in the wisdom of a minimum state.56
In the evolution of his ideas about economic policy, three periods are distinguishable: (a) Between 1774, when he wrote A Summary View of the Rights of British America, and 1790, when he returned from France and became Secretary of State in Washington’s cabinet, he believed the government should not interfere with agriculture but should let it develop in its own way, which he thought (or hoped) would be in the form of independent homesteads. He was opposed to the state’s offering any assistance whatever to manufacturing. He was opposed also to America’s becoming involved in an extensive foreign trade and believed that what little trade was necessary should be conducted with entire freedom. (b) From 1790 to 1805, when he began his second term as President, he still relied on agriculture, but now favored more production for the market including the foreign market. In his foreign trade policy he urged a program of reciprocity in which the United States would trade freely with those countries that traded freely with it and would restrict its trade with others. In the second period, more of his statements of economic policy were in criticism of Hamilton than were positive proposals in themselves. He opposed the funding program, the Bank, and protection. (c) After 1805 his ideas changed substantially. He came to believe that agriculture could no longer be the only important industry, that America must have its own manufactures, and that foreign trade had to be regulated with a strict view to the national interest, i.e., in order to increase national power. After 1807 he secured the adoption of laws that prohibited imports and exports, the purpose being to isolate the United States from the disorder of the Napoleonic Wars. From 1807 until the peace of 1815 he proposed that manufacturing be encouraged by state governments, that it be conducted on a small scale, preferably on farms as household manufacturing. Actually, in the period of isolation the factory system of manufacturing was started and became so entrenched that when the war was over it was able to secure protection to perpetuate itself.
Although Jefferson proposed different measures of policy in each period, the premise of the measures did not change. It was that policy should be a means of improvement, that it would be so if agriculture were encouraged and if the powers of the government were held to a minimum. His ideal agricultural economy was a collection of self-sufficient homesteads on each of which there were household manufactures. To show how such an economy could be realized he made his estate, Monticello, into such a homestead. Jefferson’s agrarianism was not like that of the physiocrats, and was even farther from the agricultural system which today’s liberals, often in Jefferson’s name, propose. It was in fact the atomization of the economy into isolated units. It implied a collection of independent and economically isolated farms, on each of which the dwellers consumed only what they produced, and between which there was no buying and selling although there were noneconomic relations. The agrarian economy would not have been held together by the market, bringing together the supplies of specialized producers and the demands of particular buyers. There would be no specialization between farms, because each would be self-sufficient. There being no specialization, there would be no reason for exchange. Nor would there be any need for control by the government, because there would be no economic relations for it to control. In brief, there would have been no economic system. It follows there could be no danger of the government acquiring excessive power by controlling the economy.
Such was Jefferson’s conception of the ideal economy. It suggests a Platonic construction, perfect in the mind and unknown outside it. The nearest the world has ever come to it is the medieval manor and life on the frontier. It has nothing to do with physiocracy, even though many historians and biographers of Jefferson say it has. The physiocrats had a distinctive theory of value: that for a given use of labor, agriculture yielded a larger return than other industries, the excess being the net product. They had a policy of free domestic and international trade and they proposed that the government support itself by taxing the net product of agriculture instead of harassing manufacturing and other urban industries as it had been doing for so long in France. Except for a passing remark in a minor state paper, Jefferson never showed any sympathy with physiocratic value theory, and in the same paper he concluded with the very un-physiocratic statement that trade should be restricted. Moreover, Jefferson later rejected Turgot’s suggestion that the American tax system be revised by instituting a single levy on the net product of agriculture. Jefferson’s belief in self-sufficient agriculture was contradictory to the physiocrats’ belief in an exchange economy. To be sure he often mentioned the physiocrats in his letters, but he also mentioned Adam Smith frequently, writing on one occasion: “In political economy, I think Smith’s Wealth of Nations the best book extant.”57
However neither Smith nor the physiocrats were responsible for Jefferson’s ideal economy. If he could have conjured it into existence—and only in this way could it have come into being—it would not have been an economic system as the world then or since has known one to be.
One may wonder why Jefferson entertained so fanciful a notion. The reason is partly his political doctrine and partly his polemical style. He believed that individuals should be protected from the government and that the government should help them to protect themselves. Those who live on self-sufficient farms are independent, and their material well-being cannot be impaired by the government. In economic affairs their protection from arbitrary power is complete, and being so protected they are secure also in their political liberty. As the government has no power over their subsistence, it has no power over their will—to adapt a phrase of Hamilton’s that was thoroughly consistent with Jefferson’s thinking. Or, to paraphrase Harrington, a man who feeds himself is under his own empire. His independence is different from that of individuals who prosper in a market economy, because his conduct is not affected by what others do and it does not affect them. The income and wealth of a self-sufficient farmer would be much less than that of a farmer in a market economy, but the security of his economic and political freedom would be greater. Hence the independent farmer was thought to be the guardian of liberty and independent, atomistic agriculture to be the most desirable form of economic organization.
Taken literally, the policy was useless. As Mathew Carey said, “His Arcadia must have been sought, not in Virginia or Maryland, but in Virgil’s or Pope’s pastorals, or Thomson’s seasons.”58 Jefferson, I believe, knew this as well as anyone. He did not mean the policy to be taken literally. Even in his most bucolic period (before 1790) he urged measures which were quite inconsistent with independent agriculture, such as free foreign trade. In a system of independent agriculture, there could be no trade, free or regulated. Later he developed his ideas of trade in more detail and suggested a number of ways in which it could be regulated in the interests of national economic development.
Why then did he make so much of independent agriculture? Even if it did have a logical relation to his political beliefs, of what importance could it be if it was entirely unrealistic? I think it was his way of emphasizing the idea that economic independence is the basis of political liberty. He customarily dealt in overstatement in order to impress others with his point, just as Hamilton had his own debating technique which was logic-chopping. Jefferson’s Arcadian remarks were meant (it seems to me) to stress the point that the freedom of the individual is most secure when he is most independent and that he is most independent in an agricultural economy that is based as little on the market as possible even though the basis would of necessity be greater than was ideal. At all times he urged the government to foster agriculture, to foster as little as possible the development of an industrial exchange economy, and to promote the establishment of household manufactures on the farms. The “government” which was to do this was the government of each state, not the Federal government. That the Arcadian policy was not meant to be taken literally is indicated in a letter he wrote in 1785, one of the years when he most often proposed it:
You ask what I think on the expediency of encouraging our States to be commercial? Were I to indulge my own theory, I should wish them to practise neither commerce nor navigation, but to stand, with respect to Europe, precisely on the footing of China. We should thus avoid wars, and all our citizens would be husbandmen.59
As he grew older, Jefferson moderated his strictures on commerce and relaxed some of his opposition to the government’s exercise of economic power. His final policy, however, embodied much less power than the policy of Hamilton did at all times. Although Jefferson abandoned his unqualified opposition to monopoly, he never became tolerant of it and always insisted it be restrained. When he adopted the view that internal improvements were the responsibility of the Federal government, he made the qualification that they be preceded by a constitutional amendment, which the Federalists never had believed was necessary.
Each of his later ideas was as consistent as the earlier with the principle that the state should do as little as possible and that little should improve the people. None however had as direct a relation to the principle as his proposals for a redistribution of land. They were made at different times in his life. Since most of the national wealth was land, changes in land ownership would redistribute most of the national wealth. His land policy had two economic objectives: to eliminate gross inequality of ownership and to foster freedom in the use of land. In 1785, he wrote that although an equal distribution was “impracticable,” gross inequality could be reduced by “silent measures,” such as abolishing primogeniture and the levying of a tax in “geometrical progression.” At another time he recommended that free land be given to immigrants. He would have secured freedom in the use of land by eliminating feudal encumbrances and so allow each generation to use its land as it wished, with one restriction however: that it must not encumber the generations which follow it. He said that no generation should incur debts greater than its ability to pay them. The limitation would enable each succeeding generation to use its inherited capital as it chose.60 The limitation also would assure to each generation an amount of capital no less than the amount with which the preceding generation began, thereby guaranteeing to each that its economic opportunities would not be curtailed by a declining stock of capital.
THE EXTREME REPUBLICANS
The idea implies the state has an obligation to provide some amount of economic opportunity to the population, a provision which is clearly a measure of improvement. The obligation was made explicit by Joel Barlow, and a means by which it could be discharged was described by Paine. They addressed their statements to the French but the ideas were a part of the political currency of America also. In his ideas for promoting equality Jefferson had most in common with the extreme Republicans, whom Paine and Barlow typified. One of the birthrights of a man is a right to a living, Barlow said, and to the young of the poor the government is “bound in justice as well as policy, to give . . . some art or trade.” The duty is more important than the duty to protect impersonal wealth, because it is a law of God while the protection of impersonal wealth is a law of man. The government could perform its duty by putting the “common stock” to use. He believed there was abundance enough in the country to eliminate all poverty. Barlow was one of the first in America to express the belief. Since his time, it has been expressed so often that it hardly ever is questioned except by economists. They seem alone in doubting that if capital were equally distributed, poverty would vanish. It was not Barlow’s policy to abolish private property but to tax away a part of it for the benefit of the poor. What remained would have greater security, he said, because there would be no propertyless class to challenge it.61
A particular method of redistributing wealth was proposed by Paine in Agrarian Justice (1797). He said the state should levy a ground rent equal to 10 percent of the value of property at the time of the owner’s death. The total value of property was, he said, in part “the free gift of the Creator” and in part the result of the labor of the owner. The tax would make available to society some part of the value which was not the product of individual effort. Out of the tax receipts the government would pay everyone 15 pounds upon his or her becoming twenty-one years old and ten pounds a year to all over fifty. The rich, he suggested, could return their subsidies. Provision for the others “is not charity, but a right, not bounty, but justice” and it not only eliminates injustice but increases the security of wealth. In an earlier work, The Rights of Man (1791), he proposed an annual progressive tax on wealth, beginning at 3d per pound on estates worth less than £500 and rising to 100 percent on estates over £23,000. Part of the proceeds would be paid directly to the poor and a part used to finance public works.62
Paine, like Barlow, was not opposed to private property Indeed, he often protested that he approved of it. The capital tax was meant, he said, “not to set bounds to property acquired by industry” but “to place the prohibition beyond the probable acquisition to which industry can extend.” That is, the tax was designed to limit the inheritance of wealth. Paine and Barlow were aware of the objections which would be made to redistribution and they answered them in advance. It would be said that the poor were not entitled to assistance, which they denied by saying assistance was a right, that there was not capital enough to provide assistance, to which Barlow replied there was enough capital to eliminate poverty at least; that assistance would reduce the diligence (or incentive) of the poor, which they denied by the opposite assertion; that capital taxes violated the rights of private property, which they countered by asserting the superior right of the individual to a livelihood; and that redistribution would create disorder, to which they replied redistribution would make wealth more secure. The only argument for redistribution which is missing is the notion, current until a few years ago, that redistribution will increase spending and employment. Paine and Barlow probably were familiar with the idea, since it frequently was made in the economic tracts of the eighteenth century. It was not wholly relevant, however, because their’s was the long-term objective of equity, and they were not concerned with the short-run problem of unemployment.
The commercial, or international trade policy of the Republican party was restrictive, but less so than that of the Federalists; and there was a minority group in the party which believed in perfectly free trade.
Typical of the ideas of most Republicans were those of Madison whose declaration of 1828 on laisser faire is quoted above. When commercial policy was debated in Congress in 1794, he said he accepted the principles of free trade but believed them practical only when all nations had equal advantages in production and navigation or when all countries were willing to practice free trade. Meanwhile the United States should trade freely only with those countries that traded freely with it, and should use reciprocity to extend the area of free trade.63 The Republicans urged that the principle of reciprocity be initiated by the United States and that the United States propose a commercial treaty to France. The Federalists opposed such a treaty. They favored equal treatment to all nations, excepting Great Britain, to which (they believed) concessions should be made in the interest of peace. The debate then moved into political policy: should the interests of the United States be turned toward France or Britain, or, more candidly, which commitment offered most to American security? Both sides, it is clear, regarded commercial policy as a means of strengthening the nation’s power and did not consider it mainly as a device for increasing the nation’s wealth. The Republicans became in time as nationalistic as the Federalists were. After 1805 American shipping became fair game to both France and Britain, and Jefferson eventually isolated the country from foreign commerce. Before this occurred, an interesting Republican made a curious appeal to Napoleon: “Dites à l’amerique, dites à l’angleterre; que le commerce soit libre, et le commerce sera libre.”64 It came from Robert Fulton, the inventor of the steamboat. He was not altogether naive in urging this simple wisdom on the perpetrator of the Continental system, because many Americans at first believed Napoleon would extend the ideals of the French revolution which they took to be their ideals also. Later there was another simple statement, when the United States was at war with Britain and Stephen Decatur, the naval hero, offered the toast, “Free trade and no impressment.” On this occasion free trade had an entirely different meaning. It denoted the ability of the nation to determine its own trade policy without interference from other nations. So thoroughly had foreign economic policy become an instrument of national power that the words “free trade” could be used to mean trade regulated in the national interest.
The national interest did not, however, have the same meaning to all the Republicans. There was a difference between Paine and Jefferson on commercial policy—Paine believing in perfectly free trade—and a difference also over the proper method to redistribute wealth. In addition to these viewpoints, there were two others, those of John Taylor and of Albert Gallatin.
JOHN TAYLOR AND AGRARIANISM
Taylor was the intellectual leader of the Southern opposition to Federalist policy. His objections were well reasoned and based on premises which he was good enough to make explicit. His conception of the human material out of which governments are made was suggestive both of Hamilton’s and Jefferson’s. With Jefferson he believed the motives of men were a mixture of good and evil, and with Hamilton he believed that evil should be assumed to be the stronger. Stable government could not be achieved, he said, “unless rights and duties are thus honestly balanced against each other—unless political good and evil are duly mingled, so as to assuage the asperity of the latter, by the pleasantness of the former.”65 The idea suggests Hamilton’s belief that self-seeking must be controlled by a dispensation of “regular honors and emoluments” which would attach men to the government. However, Taylor’s ideal government had only enough power to maintain domestic order, and that was less power than even Jefferson in time came to accept. Taylor’s description of the proper division and limitation of power represents the most extreme expression made in America of the idea of the minimum state.
His economic policy, except for slavery, was appropriate to his political doctrine. He explicitly opposed all of Hamilton’s measures that would have increased the economic authority of the Federal government and he implicitly disagreed with the measures of Jefferson which would have had the same effect. Taylor was against the funding of the debt, the Bank of the United States, internal improvements under Federal guidance, monopoly grants, and was against the Federalist intention to industrialize the United States. He believed an industrial economy contaminated the people with “the avaricious passions of trade.” The ideal economy was one in which “the powers of the human mind” seek “the proud distinctions of science and refined art.” Taylor agreed with Jefferson that economic conduct would elicit either the virtue in men or their evil depending on its environment. As Jefferson did, he asserted categorically that the proper environment was agriculture, because it begot “a love of virtue and independence.” It is more productive than other economic activity because it receives the bounty of nature (in a vague sort of physiocratic way), it is less subject to the hazards of the market, and it tends to equalize the distribution of wealth.66
In international economic policy, Taylor was an uncompromising free-trader. The Federalist policy of protection aroused him more than any other policy, and against it he marshaled all of his economic knowledge, arrayed his political principles, and wrote with a vigor and prolixity which were unusual even in his age. Protection, he said, was unconstitutional. The proposed higher duties taxed the many for the benefit of the few, destroyed agriculture, created a restrictive system, fostered a depraved (industrial) environment, and, finally, were unnecessary because existing duties were high enough.67
The exception to Taylor’s laisser faire was slavery, which he regarded as “a misfortune to agriculture, incapable of removal, and only within the reach of palliation.” He proposed that Negroes be removed to the Northwest Territory, where slavery was prohibited, and eventually to Africa. In his early writings he did not approve of slavery but was resigned to it because he thought abolition was impossible. As the controversy between southern agriculture and northern manufacturing became sharper, he left this moderate position and defended slavery on principle. The defense is noteworthy because it later was repeated by the spokesmen of the South. Taylor said the slaves were not to be pitied, but rather the workers of the North. Compared to their oppression by industrialism, the condition of the slave was a happy one. He was cared for by a sympathetic master while the northern worker faced an impersonal labor market; and the slave could look forward to an old age of security while the northern worker had a future offering only the poorhouse or the army.68 On this theme, Calhoun later played many variations.
For his defense of slavery, Taylor has been called the prophet of secession. Actually the distinction (if it is one) antedates the controversy over slavery; and slavery, according to Taylor, was not an important issue of policy. The most important was laisser faire, which as early as 1795 he saw threatened in what seemed to be the unimportant matter of excise taxes. Taylor objected to them because they discriminated against some parts of the country in order that others might gain an advantage and therefore they violated the liberal principle of equal treatment. He warned then that there could be only one consequence if such discrimination continued:
If oppressed, states will combine—the grand divisions of northern and southern will retaliate, as majorities or ministers fluctuate—and a retaliation between nations, invariably ends in a catastrophe.
A decade later he warned again of the tendency. By then it had been arrested by the Republican administration, he believed, but had not been dispelled from the popular mind. To give the government “the control and direction of every branch of internal manufacture” would be to give it “a power, so nearly approximated to despotism, as to have become hateful to every nation not degraded to the lowest condition.”69
Taylor is important for his support of free domestic and international trade. He made no significant concession to the national interest, and, excepting slavery, his economic policy was more thoroughly one of laisser faire than that of anyone else of his age including the British liberals. He was not as competent as some others were in the whole of economic doctrine. He occasionally was mistaken, egregiously so in his criticism of Hamilton’s funding program for which, ironically, he was best known and most valued by the Republicans. But in the important area of economics where its principles must be related to those of political philosophy and a program of public action made from both, Taylor made a substantial contribution. It was to warn of the danger to individual liberty which lay in the state’s exercising broad economic powers. The idea had been expressed many times before, but it was important enough to be repeated. Had he written less and that more lucidly, he perhaps would be better remembered today.
However he probably would not have had more influence on his contemporaries. He did not respond to the national interest as they did; indeed, compared to them, he was indifferent to it. They who in their doctrine and actions accepted national power were the more influential. The great influence of the Federalists, and especially of Hamilton, was the result, I believe, of their insisting from the very start that national power was the object of government. The power which the Federal government actually acquired was less than the Federalists wanted but was even further from the small amount which the Republicans originally thought was sufficient. In time the Republicans (except those like Taylor) accepted the inevitability of power and acceded to a nationalistic economic policy.
In the change, Albert Gallatin became their authority on economic affairs. He was the only Republican whose knowledge of economics could be set against that of Hamilton. Although not another Hamilton, in either economics or politics, he was nearer to him in stature than were any of the other Republicans, and he often was called Hamilton’s alter ego. There was a correspondence of ideas between the two men which helps to explain the eminence that Gallatin had. As Republican economic policy became nationalistic, the change affected Gallatin less than it did others in the party because he never had accepted the entire policy with which the party began. Although the party made much of him from its start, he never was as far from Hamilton’s policy as most Republicans were. He was so welcome an acquisition in the 1790s because he could understand the kind of economic analysis that Hamilton employed and could oppose him on theoretical grounds. Then as the Republicans changed their views the influence of Gallatin increased, because the change brought them to his position.
The point is illustrated by Gallatin’s remarks on the fiscal policy of Hamilton. On the controversial issue of redemption at par, Gallatin agreed with Hamilton. He set forth his position in the Sketch of the Finances of the United States which was published in 1796 after Congress had adopted Hamilton’s program. Gallatin stated that since the decision had been made to redeem at par, the government must honor it scrupulously. His reasons were similar to those Hamilton gave when he proposed redemption. Failure to respect the debt, Gallatin said, would impair confidence in the Federal government and would injure the commerce of the nation.70
There is more to the Sketch. Its purpose seems to have been to show that the Republicans could speak on economic matters as competently as the Federalists. Its premise is that the government is an economic burden, and the idea is analogous to the Republican belief that the government is a political burden also. Its expenses are “a destruction of capital” (although the destruction may be unavoidable), whether the money is used to hire labor or to refinance a debt. It follows that Hamilton was wrong in saying that funding would stimulate economic activity and so increase the nation’s wealth. The premise of the Sketch is pure Smith, whom Gallatin respected to the point of reverence. Government is unproductive, because it absorbs labor that otherwise would add to the economy’s net revenue; it lives off the revenue produced by others.71
Hamilton’s ideas of public finance were inconsistent with those of Smith. They were, as noted above, both older and newer—older in having first been set down by the mercantilists when they wrote that inflation would increase employment, and newer in having been revived in the policy of deficit finance in the twentieth century. Beyond the inconsistency however was an important correspondence of opinion between Hamilton and British classical economics. The classical argument was meant to restrict the power and corruption of government and was not directed to the problem of increasing employment nor to that of establishing the credit of a new government. How the classicists might have responded to these problems is best discerned in the writings of their predecessors, the English mercantilists, who were confronted with both unemployment and the unstable government. Many of the ideas of the mercantilists, including their conception of the national interest, were repeated in America by Hamilton.
It is unlikely that in Hamilton’s policy there were any important measures to which Gallatin could take exception. There were points of doctrine on which Gallatin disputed Hamilton’s views, but on the important issue of what actions the government should take he accepted Hamilton’s policy. So it was on the issue of the Bank. When Gallatin was Jefferson’s Secretary of the Treasury the charter of the Bank was about to expire, and Gallatin urged its renewal. Thirteen years earlier he had supported Hamilton’s plan for the Bank and by implication had disassociated himself from the Republican notion that central banking was intrinsically wrong. He said the objections raised against it were only faults of administration, not of the principle of central banking. Later many Republicans were converted to that view. During the campaign to renew the charter, some of their newspapers reprinted the arguments Hamilton had used when he made the original proposal. When renewal was considered in 1811 it was defeated in Congress by the deciding vote of the Vice President. But the government, after being without a central bank for a few years, established the second Bank of the United States in 1816. Very little then was said about its constitutionality. Gallatin said it was constitutional because it was a “necessary and proper” means for executing the powers of the commerce clause. Hamilton had said it fell within the general welfare power of the clause. Most Republicans seemed to think that constitutionality was not an issue. The utility of central banking was. In 1792 Hamilton had said that the most incorrigible opponents of the Bank would “be compelled to acknowledge that it is an absolutely indispensable engine in the management of the [government’s] finances and would quickly become a convert to its perfect constitutionality.”72 The conversion was not as rapid as Hamilton had predicted, but it was thorough.
Gallatin agreed with Hamilton on the issue of protection as he had on funding and banking. The agreement was not supported by the same reasoning (just as it was not on the other issues). Moreover, he came to the position of protection by a circuitous, indeed a bewildering, route. Although he accepted it, one would not recognize the fact from a cursory inspection of his statements on commercial policy. “I was, as far as I know, the earliest public advocate in America of the principles of free trade,” he said in 1846. If this is so, he must have meant by “free trade” something odd indeed. As Secretary of the Treasury, he approved of Jefferson’s commercial policy of reciprocity. It was not antithetical to free trade, but neither was it the real thing. When Jefferson’s policy changed to protection, Gallatin raised no objections. He went over Jefferson’s second inaugural address before it was given and although he suggested changes in certain parts, he proposed none at all in the passage urging the subsidizing of manufactures. Later Gallatin was associated with the free trade movement, which actually was for free trade and which carried on its journal the banner, “Laissez-nous faire.” The movement held the Free Trade Convention in Philadelphia in 1831, and Gallatin wrote the memorial which was addressed to Congress. It was a genuinely free trade document. Yet fifteen years later. Gallatin again was in favor of protection. His support was qualified but real. He wrote that the duties which then were levied for revenue should be managed in a way which would aid “the progressive development of national enterprise and industry.” The statement is more than an expression of economic patriotism. He approved of duties as high as 25 percent, which is substantial protection even though the manufacturers wanted more. Manufactured goods which required more protection “must generally be considered as unnatural, forced hot-house products,” he said.73
The paradoxical quality of Gallatin’s views is to be explained, I believe, by the fact that like many other leaders of economic thought in America he eventually made the national interest the ruling objective of policy and like them he did so with hesitation, doubt, and reservations about the power which the policy implied. In their political economy they tried to compromise the powers which the individual needed in order to be free with the powers which the government needed in order to increase the strength of the nation. The compromise does not stand up well under logical examination. Logic however is not an indispensable requirement of policy. Certainly the policy of classic liberalism is not remarkable for its logic. What appears to be more important is the ability of the policy to provide for continuing economic endeavor, for growth, and national development. By this test the political economy of the early Americans was eminently successful.
THE STOIC ORIGINS OF LIBERALISM
THE MERCANTILISTS AS LIBERALS
THE ORIGINS OF AMERICAN LIBERALISM